So, you’ve just received an unexpected bunch of money. Whether it may be jubilantly from a lottery or sweepstakes win, or sadly from a death of a loved one’s inheritance, you are now the recipient of a windfall. While receiving a good chunk of change is never a bad thing, it may still come with unexpected headaches. So, how do you manage a windfall of money?
Don’t spend it all too fast
According to Yahoo Finance, approximately one-third of lottery winners will go bankrupt. Similarly, those who receive inheritances or any kind of financial windfall may not be aware of the financial obligations that go along with those earnings.
“Taxes, legal requirements and potential long-term impacts on their financial life (like changing tax brackets) must be taken into consideration,” according to Forbes Advisor.. “To help manage a windfall, you need to have experienced professionals on your side. These professionals should have worked with clients who have had similar significant influxes of cash or assets.”
What are some of the reasons past lottery winners have lost their money? Typically, this includes people not understanding how to manage their money, reckless spending, overestimating earnings and demands from friends and family, according to Yahoo Finance.
How to manage your spending
Forbes recommends enlisting a certified public accountant, financial planner and attorney experienced in estate planning. These professionals can help you create a sound financial plan for taxes, payments, associated family members and the future. “If using an industry professional, like a financial advisor, be sure they have a fiduciary obligation to legally act in your best interest (as opposed to theirs their own,” according to local financial advisor firm Clarity Wealth.
While you may want spend all your money on a big vacation, car, house, etc., it’s important to understand boundaries for expenses, according to Yahoo Finance.
“It’s important to set boundaries with your money and ensure you spend within the limits you budget. You need to determine how much you want to use to live, give, save, and service outstanding debt,” according to Clarity Wealth.
Set boundaries
Family and friends may come out of the woodwork to ask for money once they know you have a bunch of it. Set boundaries when it comes to people who may be a little too excited about your new financial success, and make sure you are always sticking to a financial plan.
“It’s probably best to keep it low-key and not show off the newfound wealth too much,” according to Clarity Wealth. “Find someone you trust and can talk to about this. They can help coach you on how to handle questions from family and friends.”
Inheritance recipients should be aware of the associated taxes.
“If it’s cash you inherit, you won’t pay federal estate tax on it unless the sum is greater than $12.92 million. However, you will need to find a place to park it until you come up with a solid plan for how to allocate the funds, maximizing their potential to positively affect your life,” according to thestreet.com.
Local financial advisor firm Clarity Wealth advises several steps when coming into a windfall of money that include:
- We recommend holding off on making any decisions for at least 30 days. Given the emotional nature of the situation, it’s important to take some time and think things through.
- Take a moment to reflect on your long-term goals. Understanding what you want to achieve in the bigger picture can help guide your decision-making process.
- It can be tempting to indulge in impulse buying but try to resist the urge to splurge. Taking a step back to evaluate your priorities can help ensure you make sound financial decisions.
Having a financial advisor is your best bet for keeping a good plan to manage your money.
“Be sure to take the time to invest in yourself. Together with your new financial team, you can make plans to make your good fortune last,” according to Forbes Advisor. “Making a few plans and having trusted people to give you advice will make it easier to both find the fun and budget for it while protecting your newfound wealth.”
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